Rick Rule on Uranium: Early Means Wrong, Unless…

In an exclusive Q&A session for Sprott Private Wealth clients, Rick Rule shared his thoughts on the uranium market and explained why speculators shouldn’t worry too much about being early.

Transcript (edited for readability)

Rick: Let’s begin with a general discussion of the resource market. Those of you—and I assume that most of the Canadian clients of Sprott have fairly broad backgrounds and resource equities. Those of you who do have that background will understand that these markets are extremely cyclical and extremely volatile. I don’t think I need to remind too many of you that the period 2011 through the end of 2015 featured a truly brutal bear markets in natural resource equities. The worst I recall since the beginning of the 1980s, the TSX-V index if my memory serves me correctly declined by 88% in nominal terms and more on real terms because the index gets gained.

Those of you who have been around for the long time know, however, that bear markets are the authors of bull markets, just as the spectacular bull market we enjoyed last decade was the author of the bear market that we just suffered. If past is prologue, this incredible decline sets the place for a very handsome recovery. And certainly 2016 saw the down payment on that recovery where the gold or precious metals sub-index of the TSX was up by at least 100%.

It’s important to know that you resolve commodities bear markets and commodities equities bear markets in one of two ways. One, the traditional way, is demand creation where simply the low prices associated with commodities in a decent economy leads to an increase in demand because the low price increases the utility of the commodity. This recovery appears to be different given a paucity of worldwide demand for anything.

The other resolution is, of course, supply destruction where an extended period of low prices causes the destruction of productive capacity which is very difficult to reestablish because of the long lead times and the incredible amount of capital that are required to address bringing production back online. And I suspect that the recovery that we’re going to see in this market will happen as a consequence of supply disruption, which means, ironically, that this market could, in theory, overshoot to the upside well above market clearing prices because the ability to address market imbalances—supply and balances will be reduced for a 5- or 6-year timeframe.

This has profound implications, of course, for the resource equities. As we know, the resource equities get oversold in bear markets and they get overbought in bull markets and one would expect, to the extent that prices overshoot to the upside with regards to the commodities that prices could but not necessarily will overshoot to the upside. That doesn’t mean that coming out of the bear market into a bull market that one should buy indiscriminately.

It’s important to note that the junior resource sector in aggregate is always overpriced because 80% of the listings in the junior market have absolutely no value whatsoever.

The credibility and occasionally the luster that one sees in junior resource markets really are caused by 20% or more of the listings. So, it’s extremely important in bear markets or bull markets not to buy the broad market but really to buy the best companies and the best performers. Mercifully over time, Sprott has an exemplary track record of doing just that and I hope that we’re able to continue that effort on your behalf.

One of the things that we’ve seen in the beginnings of this bull market that we’ve just enjoyed is occasional periods where the stocks, having been ridiculously depressed in 2015, have in the near term overshot to the upside. And I suspect that we’re going to see extremely choppy markets through the balance of 2017, which means that you’re going to have to be a stock picker, first of all, and it also means that in periods where the market is overbought, you’re going to have to remember to sell and in periods where the market declines precipitously, which it will, you have to remember not to be shaken out of the market. Remember that traders and investors both attempt to buy low and sell high.

It’s difficult to buy when the market is declined by 25% or 30%, but in truth, an attractive market that’s fallen by 25% or 30% is precisely 25% or 30% more attractive, and this will be a stock picker’s market and a market where you either have the intestinal fortitude to use volatility as a tool or it will certainly use you and you will become a victim.

Yes, we’re in the early stages of the bull market, but no it’s not going to be easy. It’s going to be volatile. There’s going to be a lot of money to be made but you’re going to have to follow your brain not your heart because the market will always attempt to trick you by rising rapidly and by selling off just as rapidly. The beginnings of bull markets as you’ll recall in the 2000-2002 period can be extraordinarily volatile.

Some of you will recall the beginning of that last great bull market upside, the early part of 2001, when the market fell by 40% to punish the faithful just one more time. Could that happen again? It almost certainly will. Don’t be shaken out. Use the sell-off as a chance to position yourself for the subsequent runs.

Now, let’s talk about the subject of the call—the uranium market. I suspect that anybody who is on this call after the long bear market that we have endured in uranium were participants in the bull market that we enjoyed in the 2001-2006 timeframe. That was easily—and this is a poor pun—the most explosive bull market I have ever seen in my career. I remember there were 5 uranium juniors, 5 companies worldwide where the management teams had a deep enough memory to be able to spell uranium. And over the course of that bull market, the poorest performer of those 5 juniors ran 22:1. The best performer in that market, Paladin Uranium, ran from a bottom of 1 penny to a high of $10. The single oddest experience of my financial career.

What’s interesting about that bull market is that at the beginning of that bull market, nobody wanted to believe. Uranium hadn’t performed for 20 years, so many observers were bored. And the ones who weren’t bored were actively hostile. When you mentioned uranium in 2000, people thought of Hiroshima, Nagasaki, Three Mile Island or Chernobyl. In truth, they were critical rather than merely bored. It was, in fact, a contrarian’s paradise.

By the end of that bull market, people who had equated uranium with Chernobyl and Nagasaki were trying to cadge new stock tips out of anybody who could spell uranium. This disgust gave way to total greed. The extremity of that bull market became amusing after a while because as a consequence of the bear market, there were probably only 10 or 15 exploration teams worldwide who were confident to own a uranium company. Yet at the top of the bull market boom, there were 500 companies that purported to be in the uranium business. That meant determining whether or not a company had an adequate management team was a simple function of dividing the number of teams available—15—by the number of applicants—500. Not a very promising outlook.

It is strange that when a commodity has to go up, nobody cares. And when a commodity has gone up and doesn’t have to go up anymore, nobody cares. It’s interesting how really so soon after we’ve learned that lesson how we forget the lesson with the exception, of course, of those of you who are on the call.

So, let’s look at the uranium market today and where we are. You’ll recall in the last market that the price of uranium ran from $8 a pound in 1999 to a high in excess of $135 a pound in 2006. And although it hasn’t round-tripped, it has come pretty close. Subsequent to the tragic events in Fukushima, the uranium price fell from $85 a pound all the way down to a low of $18 a pound. It has settled out now as we speak in the spot market of $24 a pound.

Let’s look at uranium industry economics and talk about where the price of uranium is likely to go in the intermediate, that is, 2- to 5-year timeframe. The International Energy Agency estimates that the global total cost of production—this includes issuer working capital and adding back or subtracting, if you will, the value of prior exploration and production write-downs—that the total cost to produce a pound of uranium today is about US$60 on a global basis. So, worldwide, we spend $60 a pound to make uranium and we sell it for $24 a pound. We lose $36 a pound and being minors we try and make it up on volume.

What this means is that the industry is in liquidation. Why would anybody invest in an industry in liquidation? How much should one pay for the privilege of losing $36 a pound on volume? The reason is, of course, that either the uranium price goes up or the lights go out. Well, uranium is a politically unpalatable source of energy. It’s a widespread source of energy, nonetheless. Responsible at the present time for between 15% and 16% of total US base load demand after 2 decades of very strong investment in a variety of alternatives including wind, solar and natural gas.

While it’s a politically unpopular form of energy, it’s a necessary form of energy. And I would submit to you that within the intermediate term timeframe, that is, the 3- to 5-year timeframe, we have two expectations. One alternative is that the price of uranium goes up to the cost of production or the other is that the lights go out. And my suspicion is that it will be the former rather than the latter. And this move from $24 a pound to $60 a pound should engender a pretty interesting move in the uranium stocks. You have seen in the last 8 weeks an amazing move in the junior uranium stocks probably in anticipation of the bigger move.

It’s worth noting that the yellowcake price in the last 8 weeks has gone from $18 a pound to $24 a pound. That is, it has gone from very—well, from ludicrously uneconomic to just plain very uneconomic. And the consequence of that is that the price of many uranium juniors has doubled and some are up by 400%. We’ll talk about this in a minute.

It is my own expectation that the uranium price will stay weak. I can’t tell you how weak and I can’t tell you for how long, but at the present, despite the fact that uranium prices are very low, the market is oversupplied. You’ll hear many reasons for this. People always seek a narrative to justify conditions, but the most obvious one to me is that the second biggest consumer of uranium in the world, the Japanese, shut off uranium production following Fukushima. So, a country that had supplied about 16% or 17% of global demand all of a sudden had a hundred million pounds of inventory that they weren’t going to use. In other words, what had become demand suddenly became supply.

The most important single thing for you to watch as uranium investors and speculators more important than anything else is the pace of Japanese restarts. If Japanese reactors begin to restart, two things happen: systemic demand returns to the market and about 75% of what currently constitutes supply disappears from the market. The market fell simply because there was a plurality of supply over demand. The market will rise when the demand begins again to exceed supply. This is a question that begins with when not if. But when is an important question.

Is there any reason to justify the increase in uranium stocks that we have seen in the last 8 weeks? And the answer to that is: unless you know when the uranium price is going to increase, probably no. How do we play this game? We know for sure that the uranium price must go up or the lights will go out. So, we have a wonderful question in the sense that the unanswered question is when but not if.

In terms of the speculative aspects of the uranium market, which I suspect most of you are more interested in, I want to bifurcate the strategies that we’re going to talk about between what I would call strategic speculation and a tactical speculation. What you will find in all commodity centers but particularly in uranium is that the management talent and the assets do not align conformably across the whole market but a rather concentrated in a fairly small number of companies.

My suggestion is that of the 30 or 35 companies that remain interested in uranium—by the way, that’s down from 500 over 5 or 6 years. Of those 30 or 35 companies that pretend to be in the uranium business, there are 6 or 7 that are probably market leaders in terms of their assets and their managements. I am not prepared to disclose on this phone call who they are because our own research differentiating the best from the worst is not done.

We expect to have a list that will have segregated that 35 down into 6 or 7 and we expect to have that available through your Sprott brokers in the early or mid-summer, that is, June and/or July.

Now, one thing that those of you who experience the last market will understand is that as Doug Casey would say, “When the tide rises, all boats float,” which is to say that the lousy companies will perform in the market sometimes better than the good companies. And there is a case to be made for tactical trading, that is, buying companies with tiny tight market caps to participate in the furor that is usually engendered by a real market.

But you need to differentiate within your own portfolio those companies that deserve to do well as a consequence of their managements and their assets, and those companies that will do well as a consequence of the stupidity of your peers. In my own experience, when I have tried to buy stocks in anticipation of people even more foolish than me following me, I have turned out most often to be the greater fool.

From my own point of view, most of my own uranium speculations will be tactical speculations, that is, I will attempt to confine myself to the best companies, not necessarily the companies that have the best market structure, momentum, and trading characteristics but rather the companies that have the best management teams and the best assets.

One of the things that I think that you will see in the next 2 or 3 years before this market gets underway in earnest is you are going to begin to see concentration and amalgamation in the uranium business. This is a very good thing. When you see industries in liquidation like uranium, one of the critical tasks is to increase the assets under management by smaller groups so that the general and administrative expense relative to assets under management declines. The industry needs efficiency which it hasn’t seen. And you also need management teams that are able to make decisions over broad asset bases so that they optimize the asset rather than optimize their chances for salary.

You need ultimately to see low G&A charges relative to assets in the ground and production. So these amalgamations will be good and the amalgamations will benefit the companies that are consolidated in the near time. In the long term, they will benefit the consolidators.

One thing I really want to talk about, because I expected everybody on this call is already long in the uranium stocks and is excited about the moves that we’ve seen, is the need, in the choppy market, to remember that buying low and selling high involves both of those actions. When the overbought situation in uranium corrects itself, these uranium juniors that have run up 100%, 200%, 300%, 400% can easily decline by 50% which makes them paradoxically 50% more attractive even after they have disappointed you.

What I am trying to say is if you bought a viable uranium junior 8 weeks ago at 10 cents a share and it’s currently at 45 cents a share, you might be well advised selling half of your position drawing your capital out so that you have the rest of your position for free so that when and if the prices decline, you have both the cash and the courage to take advantage of the market decline because, make no mistake, nobody is going to be building any mines at $25 uranium. It’s going to take a higher price to incent the mines to be built, which means that between now and that blessed event that we’re going to have lots of advances and lots of declines in the market. Lots of chances to take advantage of volatility and lots of time to be taking advantage of volatility.

It will also be important for those of you who are qualified to take advantage of private placements to be part of the Sprott effort to capitalize the best uranium juniors. It’s our belief that we don’t want to be involved in any company that we won’t be willing to finance for 3 years of bad markets. In other words, while this market may perform this year, it may not perform in 2018. It may not perform until 2019.

The last uranium market that I was in, I was 3-1/2 years early which tempted me to say I was wrong except I made so much money after that in such a short period that it overcame almost any discount rent that I wanted to apply to it. And my suspicion is that that might be true this time.

Don’t make a commitment to the uranium business that you aren’t prepared to stick with for 3 years.

When you can, make that commitment in a private placement. Make that commitment so that you have the size to stay interested and more importantly where you have a warrant, the right but not the obligation to buy more stock at a fixed price when you are right and the price goes up.

Be picky. Pay attention to and take advantage of opportunity. Stay in touch—in close touch with your Sprott broker and find out when private placements in the sector are available. Buy those private placements where you have enough courage of your conviction that you’re happy to stay along for 2 years or 3 years even in the face of periodic 20% and 30% decline.

I think that’s a good enough general overview of the uranium market and now what I think I’d like to do is to begin answering questions.

[Begin Listener Q&A]

Question. “Does the uranium oversupply take 2 years to unwind? What price can it be expected until then?”

Interesting question. I’m too old and smart to answer it directly. I have no idea when the oversupply unwinds. The leading indicator will be Japanese restarts. If we see Japanese restarts 9 months from now, effectively the overhang in the market is gone. Until we see Japanese restarts, the overhang that we see in the market will not happen.

In terms of what price could it go to, well, the global cost of producing uranium right now is about $60 a pound. At the beginning of the last bull market in 2000 or 2001, the global cost of producing uranium was about $30 a pound. One would have expected an irrational market the last time through for the price escalation to peak out at $40 or $45 a pound. But you’ll remember when you have a supply destruction resolution of a bear market and the market supply and demand is equalized and the price starts to pick up, the suppliers can’t meet pricing signals in the market.

In the last bull market, the price could have resolved itself in the $50 or $60 range but overshot all the way to $130 or $135 a pound. While this market could resolve itself in the $70 a pound level, it’s not unreasonable to believe that we have any global economic recovery or any recovery in China combined by a restart of Japanese reactors that the uranium price could settle above $60 or $65 a pound.

Remember too that there is tremendous price elasticity or demand in elasticity with regards to uranium. The price of producing electricity from a nuclear reactor is completely independent on the price of uranium. The uranium as a percentage of the cost of generated electricity in a nuclear reactor is commonly between 3% and 5% of total costs. The truth is that in the nuclear industry today, the legal bills are much higher than the uranium bills.

The consequence of that, if you have 6 billion dollars invested in a reactor and you’re burning a million pounds of fuel a year, the difference to you between spending 30 million dollars on yellowcake and 60 million dollars on yellowcake is entirely irrelevant. It’s the 6 billion dollars that you have invested in the plant that matters.

What that means in the case of uranium given that it sells for $24 and it costs $60 is that the price of uranium must go up and because there is so little demand elasticity, the price of uranium can go up. The price is something that must go up and can go up almost certainly will go up. I just can’t tell you when.

Next question. “Is Toshiba’s problems with their reactors going to impact the outlook for uranium?”

The answer to that is no. There are plenty of competing suppliers of nuclear technology. And Toshiba’s problems are precisely because they are an inefficient problem-solver. Markets work. The most efficient solvers of problems kill the least efficient solvers of problems, and Toshiba has proven then to be, at least in the context of constructing reactors in the United States, very inefficient problem-solvers. The market is doing what it was intended to do, which is basically assassinating Toshiba’s nuclear business. But there are plenty of nuclear technology providers in the world. The thing that matters one more time in terms of the uranium price is Japanese restarts.

The next question. “The market is rigged. The only relevant chances is our chances of recovery through a lawsuit in the second district of Court of New York.”

I don’t happen to believe that assertion. Given the fact that I have hung around, if you will, Canadian small-cap markets for years means that I’ve seen a lot of rigs in my life. I’ve seen a lot of conspiracies. And in my suspicion, a thorough going rig is impossible because the people who organize and engineer the rig turn on each other.

Markets work over time. Rigs don’t work.

The idea that there is a political class which would like to eliminate the use of uranium is absolutely true. The problem with that is that even that political class when they come to congress or parliament and flip the switch wants the lights to go on, and those are their alternatives. Think about their other alternatives. Germany is an example. In a political context, very publicly shut down nuclear energy except that they didn’t. They bought nuclear energy from Poland, nuclear energy from France.

The difference was the domicile of the reactor, not the consumption and that part which they couldn’t buy from Poland or France in large measure, they filled in by burning dirty U.S. coal. It’s an interesting green solution to an odd political calculation. So, the market is rigged? I don’t think so. The relevant topic for me is Japanese restarts, not some kangaroo court in the United States.

Next question. Somebody quoting me, throwing my own verbiage back at me. “If you’re too early, you’re wrong. In questioning when uranium companies are profitable or uranium spot price is north of $30, are you measuring in months, years or decades?”

Now this is the crux of our discussion. You’ll recall earlier in this discussion my admitting to being at least 30, probably 40 months early last time, and I publicly castigated myself saying that 10% discount being 4 years early isn’t the same as early. It bridges on being wrong, except when you have a 5-stock portfolio where the worst company goes 22:1. In that particular case, the truth is that the money my clients and I made overcame almost any discount in a financial sense.

Now, in terms of a non-financial sense, that is, the trauma that you feel being 40% or 50% down on an investment when other types of investments are working and you’re lagging can take you to the psychiatrist couch at the very best. It’s important to measure whether you have the financial and the psychological strength to be early. But the truth is the contrarians—successful contrarians are always, always early.

Do I measure this in months? Likely not. Years? Likely. Decades? Certainly not. If the current condition that we’re in extends longer than 5 years, you will see almost every uranium mine in the world with perhaps 5 exceptions shut down. Could it take 2 to 3 years? Absolutely. But one more time, what you watch is the pace of Japanese restarts.

Next question. “Is the present moment too early, just right or a little late to start investing in uranium juniors?”

That’s a great question. And the answer to that is actually yes, yes, and yes. It depends on who you are. It depends on your orientation. It depends on your timeframe. It depends on your psychological tolerance and your needs. A little late? Well, a basket of uranium juniors is up probably by 100% in 6 weeks, which is to suggest that they’re substantially less attractive than they were.

My own supposition is that not all of that basket will exist when the uranium price goes up. Some of them will go to zero. The time to sell those is anytime you own them. But the truth is, that the survivors in the 3- to 5-year timeframe, my suggestion is, will be markedly higher than they are today, but perhaps lower first. So, are we too early? Maybe, for some of you. Are we too late? Maybe, for some of you, if 30% or 40% decline would shake you out, then you’re too late. Or is it just right? If you have a 3- to 5-year timeframe, that one is probably true too. I’m not meaning to be obtuse. I am suggesting that the answer to that question has more to do with you as an investor, as a speculator, as a human being than it does with the uranium market because the truth is that all three of them are true.

Next question. “Small modular reactors, do you feel this development technology ‘led by UK, Bill Gates and others will advance uranium markets in 2017?”

Absolutely not. It might influence the narrative, the thinking around uranium. It might excite people, but demand from small modular reactors will probably not be a factor in the market for 10 years. After the ultimate commercialization of this technology, if it occurs, I see one of the strangest permitting nightmares in the world—the idea that you’re going to be able to permit a backyard nuke. While it’s highly amusing to me, probably it’s causing conundrum already in federal, state and local governments. A conundrum that I think is wonderful, but I don’t see impacting the market in particular.

Next question. “Gold and, to a lesser extent, silver and uranium are presented as negatively correlated with the stock market in general. If there is a sudden drop in the market as a whole, will gold and uranium stocks also tank?”

The answer to that is absolutely. What you’ll learn about resource stocks is that resource stocks are stocks. And when stock markets tank, in particular, in response to liquidity crisis, all stocks tank and stocks on the periphery of markets—small stocks, stocks in unpopular sectors tank the most.

So, if we have 30% or 40% market decline, my estimation is that we’d have a 50% or 60% decline in the small resource stocks. I also believe that some of the small resource stocks are undervalued now, which means that they would come back quicker than the broad market. The question is, would you have the courage to hold them through that? Or better yet, buy into that sort of decline? Remember the different name for a bear market is a sale. It’s just that people will very seldom have the courage to buy financial assets on sale.

Next question. “How much spare production capacity do current uranium producers have?”

And the answer to that is not much. They have a lot of latent capacity, but bringing that capacity online with the exception of Kazatomprom requires a lot of capital expenditure and a long lead time to production. An example would be one of the largest uranium producers in the world is actually a by-product at Olympic Dam in Australia and Olympic Dam could easily supply another 15 million pounds a year.

The problem with that is that the expansion that they’re looking at Olympic Dam is a 15 billion dollar capital outlay that will take 60 years to effect and is, in fact, more reliant on higher copper prices than uranium prices. So, with the exception of Kazatomprom which has a substantial amount of fairly low cost production that they could bring online, there is not much spare productive capacity and there is no productive capacity at all that I’m aware of with the exception of Kazatomprom below US$45 a pound. There is, in the U.S. market, probably four million pounds a year of spare productive capacity, but the cash cost associated with that production are about $40 a pound. So, the incentive price for that production is $45 or $50 a pound.

Next question. “Over the next 2 years, do you see a strong enough recovery in enough countries to drive the prices of industrial metals significantly iron?”

And the answer to that is no. I do not suspect that we will see a demand-led recovery in industrial materials prices. I believe that the recovery that we’ll see in industrial materials prices will come about as a consequence of supply destruction, not demand creation.

The exception to that is the nickel business where you’re having a politically engendered choice ironically for the right reasons. The government of the Philippines has made the odd right decision, not something that they’ve done very often of late, but they’ve decided to eliminate the highly destructive open-pit unauthorized laterite mining that’s taking place in decimating large amounts of the Philippines islands. This reduction of laterite mining has caused supply destruction in the nickel industry that I think will drive the nickel price higher without increased demand.

Next question. “Why do uranium producers continue to produce so much if they are losing $36 a pound?”

The answer to that is a paradox. In capital-intensive businesses, when you have sunk billions of dollars into productive capacity, you produce down through marginal cost and often through marginal cost because it costs you so much money to shut in production and then it costs you so much money to reestablish production that what people often do is they produce down to the cash cost of production and then they produce below the cash cost of production in the vainglorious attempt to win what we call “the last man standing” contest. In other words, you want to have productive capacity available when the price increases.

And then, of course, there’s that great unsung reason why people continue to produce. And that’s so that the management team can continue to have something to do and draw their salary. Remember that in the mining business, management teams consider true yield not to be profit margin but rather salary and emolument to management teams, which can seldom be done when they shut in production.

Next question, “Trump’s indifference proves him to be republican captured by fossil foil oligarchs. Bad time for alternative sources including uranium.”

My own suspicion is that although politics are important in both the near term and the long term, markets trump politics—poor play on word. And by the way, Trump is pro-nuclear. I think that Trump’s tweets and pontifications notwithstanding, his influence in the uranium market over 5 years will be nonexistent.

Next question. “Republicans captured by fossil fuel oligarchs.”

All of those oligarchs are also uranium oligarchs. So, my own suspicion is that although the narrative might be driven by the political headlines, the only politics that matter in the uranium business are Japanese politics. The popular consensus in Japan about whether energy security—Trump’s danger that the Japanese people have been exposed to by the Japanese nuclear industry. The only politics that matter in the uranium business in the near term are the restart of Japanese reactors, all the other political morons notwithstanding.

And with regards to alternative sources, remember that all of the alternative sources are challenged by uranium in the sense of uranium’s incredible energy density and the fact that the money to burn the stuff, if that’s the right phrase, has already been spent. I realized that the political establishment before Trump preferred other sources of energy, things like solar, but they had obvious problems, things like night.

Distributed energy, inconsistent energy, requires an amazing grid. You have to get wind power from where the wind is blowing to where the energy is wanted. You have to get solar power from where the sun is shining to where the power is going to be consumed. In order for this distributed energy to be effective in the United States, in the first instance, you needed up 400% redundancy which means that you need the ability to produce at peak about 4 times the average power consumption and you need an incredible expenditure in wire to get the power to where it ain’t from where it is.

Next question, “The USA is the number one producer of nuclear power, 9th largest uranium producer. Concerning the amount of supply, which is produced by CIS nations, in your opinion will security of supply be a priority for the USA in the near future?”

The narrative to that question is yes. I think what you’ll see coming out of the Trump administration is the importance of US source material. I’ve heard that my whole career, about 40 years. The truth is, in need, demand is tangible. My entire career, there have been incredible postulations from the morons in Washington about the efficacy of using Arab oil as we burned millions of barrels a day.

Similarly, the Venezuelans have unveiled against the imperialist Americans on a global basis while the principal consumer of Venezuelan oil was, of course, the U.S. Will we make loud noises about the need to produce uranium in Wyoming and Texas? And will we allow that to make us pay more than a dollar or two a pound more for U.S. supply? Absolutely not. The truth is, you want electrical power at the lowest price that you can get it.

Now, is there a good future for nuclear in the U.S.? That’s a very different question. We have the rule of law in the United States. We have the best infrastructure with regards to electrical transmission and other source of things in the United States. Will there be money made at $60 a pound in Wyoming and Texas? Absolutely. Will we shut down nuclear generation in the United States? No. Will we shut down uranium mining in the United States?

The truth is that there are 4 good jurisdictions in the United States for extractive industries—Alaska, Nevada, Wyoming and Texas. And domestic uranium production is concentrated in Wyoming and Texas, both jurisdictions that have long regulatory experience with the uranium business. And make no mistake, in an industry as charged with narrative as uranium is, you want knowledgeable rather than unknowledgeable regulators. The regulators in Wyoming and Texas understand the risks of uranium. They have long experience in attempting to help industry mitigate those risks. Those are great places on a global basis to be producing uranium.

Will protectionism matter? No. Not at all.

Next question, “What are your thoughts about Deep Yellow Uranium as an investment or speculation?”

In the first instance, I can’t talk to you about what’s appropriate for you as an investor or speculator. In other words, I can’t give investment advice because I don’t know about the questioner enough to answer the question. I, or rather, an investment partnership where I am the general partner and the largest limited partner, has become the largest shareholder in Deep Yellow Uranium. I did that because of the incredible experience I enjoyed some years ago with Paladin, the stock that as I told you moved from a penny to $10.

Deep Yellow is the re-acquaintance of the original Paladin backer, that is myself and Sprott, with the team that made Paladin work, led by John Borshoff. Will past be prologue? I hope so, but I have no idea.

Is Deep Yellow an attractive investment or speculation? Well, it’s not an investment at all. Is it an attractive speculation? For you? I don’t know. My mind is obviously made up. A partnership that I control is now a 15% shareholder.

There will likely be a financing in Deep Yellow—and I’d say likely. They haven’t agreed to any proposals made by anybody, but there will likely be a financing in Deep Yellow in the next 3 months. And assuming in that an agreement can be made between Sprott and Deep Yellow, that financing will likely be done by Sprott. Now, the truth is that there are several groups that are competing to offer Deep Yellow money. My suspicion is that given our long relationship with Deep Yellow, that that management team believes that we bring more than money to the equation, but I may be flattering us in that discussion.

Final question, “I have been in the uranium markets for many years and have heard that the turn in the uranium market is closed. I recall watching a webcast on the same with Marin Katusa and I think yourself a few years ago. Could this be another false dawn?”

Absolutely, this could be another false dawn. Right now, demand is constrained because of Japanese restarts. There is between 80 and 100 million pounds of excess supply because of Japanese restarts. The timing of the recovery of this market is a function in the near term of Japanese restarts; in the long term, about the bankruptcy of the uranium power industry at this price point.

If you have questions about the topics raised in this article, please reply to this email or contact the editor here. You can also call your Sprott Global financial advisor at 800-477-7853.

Rick Rule

CEO, Sprott U.S. Holdings

Mr. Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As Director, President, and Chief Executive Officer of Sprott U.S. Holdings, Inc., Mr. Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management.

Mr. Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics. He is frequently quoted and referred by prominent natural resource oriented newsletters and advisories. Mr. Rule and his team have long experience in many resource sectors including agriculture, alternative energy, forestry, oil and gas, mining and water. Mr. Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.

If you have questions about the topics raised in this article,please reply to this email orcontact the editor here. You can also call your Sprott Global financial advisor at 800-477-7853.

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